The Debt and Deficit

“Debt is the biggest threat to US security”

Admiral Mike Mullen

When individuals fall on hard times or lose their jobs, the first thing they do is reduce spending, cut costs, and stop buying things they don't need. However, when politicians talk about reducing spending, they're not talking about the same thing; they call it "baseline budgeting." According to Citizens Against Government Waste, "In reality, baseline budgeting is one of the most sinister ways that politicians claim to cut spending when they are actually increasing spending. For example, if an agency's budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds, only gaining 75 pounds, and taking credit for losing 25 pounds." This definition which defies common sense is designed so that politicians can tell us that they are being honest when they talk about reducing the deficit while in-effect debt keeps on rising.

Pundits try to justify the size of the U.S. debt by comparing it to the GDP, even though it amounts to trillions of dollars that we owe to China, Japan, the oil-exporting nations, Brazil, Russia, etc. The logic is that if the economy grows, then the higher amount of debt as a fraction of a larger GDP will still be small. Therefore, it is okay to keep on borrowing more. However, the fact remains that a dollar of debt is still a dollar that we owe somebody and need to repay sooner or later, with interest. Moreover, interest payments on that debt do not produce anything for the society.


We have grown accustomed to living beyond our means over the last few decades. So perhaps it can be said that our leaders are trying to make us happy by continually coming up with ways to give us more. One such method is by spending through the tax code. Our elected leaders offer tax breaks which make people happy because, on the surface, this maneuver does not in and of itself increase government spending. It does not show up as inflow or outflow on government accounting books—it is just the uncollected income. So everyone is happy, except that tax breaks do add to the deficit.


U.S. Federal Debt

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Munir Moon *** The Middle Class